Why Small Businesses Love Accounting in the Cloud
Big Benefits of Cloud Accounting
In a previous article we looked at the limitations of spreadsheets and why they’re no substitute for good accounting software.
But, these days, you don’t even have to settle for accounting software that is merely ‘good’ – mainly because the technology available is truly remarkable.
And when it comes to all things technology, one of the biggest advances over the last 5 or so years has been cloud computing.
But before we get into why cloud computing is such a game-changer for accounting, let’s cover off the basics so there’s no confusion about what we’re talking about here.
Where exactly is ‘the cloud’?
Whilst the term ‘cloud’ might suggest something fluffy and intangible, the reality couldn’t be more different.
The cloud in fact refers to a highly-secure data centre run by a specialist company who live and breathe things like data security.
Those who have seen inside one of these buildings will usually tell you that they’re like something you might see in a James Bond movie - both in terms of security and technology. Certainly that has been my experience the two times I’ve been lucky enough to see inside one of these places.
What is cloud computing?
Cloud computing is simply the act of storing and accessing things like data and files online using the Internet.
An example that most people can easily relate to is Facebook (or Face-Ache as my brother calls it). So whenever you type something in Facebook (data), or upload a photo (a file), that little piece of information gets stored in a humongous data centre (aka the cloud) thousands of miles away.
So cloud computing provides an alternative to storing information on your computer’s hard drive which, for some bizarre reason, many people still consider a secure place. Silly people!
What is a cloud application?
That’s easy – it’s just a software package that also lives in the cloud – so people can access it via the Internet. Again, think apps like Facebook and Twitter, etc. but also your online banking and business applications like Xero.
Now not wishing to confuse things but you may also have come across terms like web application or even Software-as-a-Service (SaaS). Don’t worry, these are just different ways of fundamentally describing the same thing.
What are the benefits of accounting in the cloud?
Ok, so now we’re all on the same page, let’s look at why the cloud lends itself beautifully to core business functions like bookkeeping and accounting.
Lower upfront costs and resources
Before cloud apps like Xero came along, when you bought some new software you also bought yourself a headache.
Not only did you have to pay a big upfront licence fee, you also had to figure out your computer hardware requirements and how to install and maintain the software. But with a cloud app, the software vendor takes care of all that for you (in the cloud).
Of course, justifying and funding new software can be a make-or-break decision for small businesses, so the lower cost and effort of cloud apps can make a huge difference in terms of affordability.
Easy on the cash-flow
As opposed to traditional software, the upfront investment associated with cloud apps is often zero (or certainly negligible). Rather, you pay a known recurring subscription (typically monthly) to use the system. Given cash is king for most small businesses, the pay-as-you-go model of cloud apps makes them highly attractive – being a lot more affordable, predictable and flexible.
And even if you grow and need more users, the amount you pay doesn’t increase unless you need some additional functionality like multi-currency.
Reduced time to benefit
With cloud apps, the time to a fully working solution is significantly less than the DIY ‘in house’ model describes above. That’s because the software has already been installed and configured in the cloud – and is therefore ready to use.
This dramatically reduces the time to benefit by allowing for rapid go live. Also, the intuitive interfaces of cloud apps means users come up to speed quicker and need less upfront training.
No ongoing support costs
With cloud apps, the software vendor takes on the responsibility for maintaining and upgrading the software, ensuring it is reliable and meeting stringent up-time obligations.
And with most vendors offering automatic, frequent upgrades as part of the ongoing subscription charge, there is nothing for you to do except enjoy the new features.
While some people still worry about security, the reality is that the cloud can deliver a much higher level of security than most small businesses can achieve themselves.
For a start, there’s nothing getting stored on your in-house computers and laptops because everything is in the cloud.
Further, unlike the average small business, the cloud vendor eats things like security and privacy for breakfast, lunch and dinner. You can therefore be assured of a highly secure infrastructure that conforms to all the latest standards and offers tight control over who can access and edit your data.
And if there is an issue, you’ve got peace of mind with fail-safe services like automatic data backups, system redundancy and disaster recovery.
Better user experience
In my opinion, the single biggest benefit of cloud apps is their higher adoption rates by users.
Because the software is accessible via familiar web browsers, most people have no trouble getting to grips with accounting in the cloud because they’re already using other cloud apps.
In fact, I’ll go further and suggest that the cloud makes accounting more fun and engaging! Sometimes it can be hard to interest people in financial stuff but using the cloud to connect people and encourage collaboration can make it a more engaging and purposeful activity.
Here is not the place to start explaining technical terms like Web Services and APIs but they’re important because they deliver another key benefit of cloud apps – integration.
This means cloud apps can easily exchange data with a wide variety of other systems (and one of the reasons why Xero integrates with over 400 other business apps).
Gone are the days when most people only work from the office at set times on a big desktop PC.
Cloud apps support anywhere, any time, any-device access so your employees have the freedom and flexibility they now expect. Laptops, tablets, even mobile phones – all are now capable of delivering a perfectly good user-experience with cloud apps.
Cloud apps ensure consistency of information because all the data is kept in one central place – online, in the cloud. This single version of the truth means there’s less chance of human error and with features like automated bank feeds, your information is near real-time.
Case in point - learning the hard way
This time last year, we were in the midst of a significant renovation of the family home. Not the most enjoyable process I have to admit but thankfully we’d employed a reputable nationwide building company as the prime contractor.
What struck me was whilst they clearly had good building skills, when it came to ‘the paperwork’ they were pretty hopeless. In fact, it was like going back in time. As a consequence, we soon downgraded our expectations of their administrative nous and got into the habit of checking for discrepancies – especially when it came to their invoices!
Then, one Monday morning their Project Manager called to say that he wouldn’t be on-site for the next few days as they’d had “a bit of a disaster”.
Later that week we found out that they’d actually had an office break-in over the weekend.
Long story short, all their laptops and tablets had been taken and none of the information on said devices had ever been backed up. It was all goneburger, including the actual software they used for their accounting.
But here’s the twist. Whilst the disruption to us (the client) was negligible (even positive), the disruption to them was huge as they scrambled around trying to find pieces of paper and recreating all the lost information.
Then, after a few weeks, we noticed that the regular weekly invoices had stopped. Of course, we didn’t complain – it was a welcome (albeit brief) respite and great for our cash flow!
It turned out they couldn’t even invoice their clients – certainly not accurately – because they’d lost so much important information. Of course, their suppliers didn’t sympathise and so, for the best part of a month, they had huge outgoings but very little coming in the door. Terrible for any cash flow business.
And guess what? When our next invoice finally appeared, we immediately recognised it as a Xero-generated invoice (you can always tell from the nice clean layout and formatting).
Unfortunately it had taken a “bit of a disaster” for them to realise how silly they’d been in not backing up their data and why the cloud – and Xero in particular - was such an obvious remedy.
P.S. I just stumbled on this Infographic called Finance is Moving to the Cloud - it provides some clear messages.